Steem economy is for authors, not investorssteemCreated with Sketch.

in #steem3 years ago

I continue on my quest of discovering wonders of crypto world investment opportunities. I recently examined Steem, and this is my report. I will argue that Steem economy is made good for content creators and curators who is willing to sell their time and hard work, but not particulary attractive for investors. At least no more than many other blockchain-based techs at this point.

Inflation

As outlined in Steem WhitePaper:

  • STEEM has built-in inflation of 9.5% in 2017, decreasing down to 1% over the next 20 years. Inflation is required because network creates new tokens to pay content creators and curators (75%), witnesses that support the network (10%) and Steem Power holders (15%).

  • Steam Power has built-in inflation of 8% in 2017. Since SP is just frozen STEEM, inflation dynamics are of course the same, but slightly mitigated by 15% with payments outlined above.

At first I was like WHAAAT, why would anyone invest into an asset that loses 9.5% of its value annually? Ukraine in 2016 had a yearly inflation of 8.1%, and they were supposed to be in total chaos and at war with freaking Russia! Their currency at the time surely didn't look like a good investment.

On the other hand, I then found out that Ethereum has built-in 15% inflation in 2017, and others anywhere from 4% to 30%. Good job Bitcoin with 4%! Others... not so good. Apparently everyone just takes inflation for granted in crypto world. Okay then.

Zero interest rate on Steem Backed Dollars

Anyone who read Steem Whitepaper knows that SBD are designed to pay interest rate. Rate is determined by price feeds controlled by witnesses. I remember being impressed and excited about it at first. But eventually disappointed by a description in wallet at steemit.com saying annual rate is 0.01%. Effectively they don't pay.

This kind of makes sense if you think about it. Interest rate is determined by witnesses. Witnesses are elected by votes weighted by Steem Power. No SP — no vote. People with SP do not want to dilute their SP by having high (or any) interest rate on SBD. On the other hand, people who hold SBD have no power to influence witnesses. Not sure if this is supposed to fix itself later when the economy develops.

SBD are also pegged to USD, which 1) do experience inflation of about 2% per year, and 2) do not of course grow with the adoption of Steemit, as STEEM hopefully does.

Well... okay then, moving on.

STEEM is for crypto traders

Finally a change to positive tone!

Aim for the moon!

(image source)

First and foremost, STEEM (and therefore SP) value hopefully grows with Steem adoption and use, as well as market cap of all crypto realm. It is reasonable to assume it should at least grow faster than its inflation rate. This reasoning, however, is exactly the same for all sensible crypto tech out there, not just Steem. It comes down to which you believe to have greater potential for growth.

Then, if you believe in Steem future adoption and decide to be a long-term holder, you have a choice: STEEM or SP. Liquid STEEM allows to quit at any time, as well as play on internal STEEM/SBD market, betting on quick price movements when the whole crypto market moves up or down. That is, pretty much every week. As opposed to keeping funds on centralized trading platform, you're your own master here. Literally, you hold your own keys. You're not limited by platform rules and withdrawal limits; there are no fees; no risk of platform being hacked, shut by authorities or host plainly running away with clients money. Trade-off is of course that you're limited to a single trading pair.

Steem Power pays — if you work hard to use it

Experience tells that market game is fiendishly hard to consistently beat even for professionals. So, unless you are a seasoned forex shark, most likely you should turn STEEM into SP. This makes you additional 1.5% a year (in 2017) in form of dividends, at the cost of not being able to retreive your money instantly. SP can currently only be converted to STEEM by a serie of gradual payments over 13 weeks.

There is more to holding SP: it's not called power for nothing. Holding SP affects your voting power, that is, weight of your upvote. Large SP pool, together with a decent reputation score, gives you influence to affect people on the platform. Even a $1 upvote is a strong tool to play with — and my paper tissue calculations conclude it might cost as low as $7500 worth of SP on a 35-rep account. Having ability like that to affect visibility and payout of posts — yours and others — can be monetized in many ways, limited only by imagination and ethics.

The most straightforward way to monetize is the system of curation. Upvotes affect distribution of rewards to authors (which is good for the platform), and also distribution of curation rewards (which is good for SP holder). The more SP you have, the more curation rewards you get.

Curation requires hard work. And maybe more experienced steemians will correct me here, but by itself curation does not seem to bring much. Out of top 25 richest whales there are only four who did any decent amount of curation recently. Here they are:

WhaleWealthCuration reward last weekProjected annual income
@blocktrades3.61m SP2962 STEEM4.2%
@hendrikdegrote1.66m SP2048 STEEM6.5%
@abit1.54m SP1990 STEEM6.8%
@thejohalfiles1.25m SP1186 STEEM4.9%

Not stellar percentage when compared to inflation, and seemingly not a reason to keep SP by itself. But being both author and curator in some combination should certainly have potential.


Curation is hard work!
Photo: steem curator filtering through minnow posts.

Again, all this require decent amounts of work. Options become limited for those who don't write and aren't ready to invest time into curation. It is possible to set up an upvote bot <1> <2> to follow voting of others you trust. Bot still requires initial set up and occasional fine-tuning, but probably takes much less time. Technically it is possible to delegate SP to increase voting power of another account, which means one can lend SP for a fee. One can also straight up sell upvotes, as many bots do: most popular community bots are of "bid for upvote" type with variations.

More and more we go into a shady zone here. @sherlockholmes'es blog is full of posts describing SP-farming schemes. Where to draw the line is the question everyone answers for themselves.

Conclusion

My point of view as a potential investor sounds kind of pessimistic, but for what it's worth: other than hopes for organic growth of STEEM currency, existing opportunities to put capital to work do not seem viable on Steem.

Not to say that those hopes themselves are ungrounded, though. Steem has one overwhelmingly strong advantage compared to most other crypto tech. Steem, being a social network with unique features, has a decent plan for how to increase its userbase — plan that seems to work so far. Aren't those charts beautiful.

And maybe for Steem itself it's a good thing not being attractive for money. If Steem does not need money, but needs authors, it certainly makes sense to appeal to authors.



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I got this post up to $420 with my 100% upvote of around 60 cents so Im glad I got this up to $4 but THis post deserves an upvote from @neoxian and @gigafart and @tj4real and @xpency and @stellabelle and it deserves an upvote from @sweetsssj and other whales becauise this is a seriously amazing post

I bet @kingscrown would even like it!

I believe its not fqair you didnt get to front poage with this one shit but thats where I come in!

oh and i found your post using this amazing service that let me see all the steemit comments live as they come

https://autosteem.learnthis.ca/#!/comments

autosteem man its amazing i love finding steemit gems, and this thing makes it fun to see what is BRAND new and being posted live so you can go find new content easier and it shows all the steemit posts broken down with all their images in one box, like previews of the post, its really useful for sifting through minnow posts to find the good posts!

Now for the criticism:

As much as i love this popst and want to now look up how to make Tables in Markdown, I want to remind u that the price of steem has been able to go from 7 cents to $2.80 so it IS capable of making BIg moves common in crypto and we WILl see steem moon once it has mass adoption, but look the inflation rate of steem is not big enough to make it a big deal even you said yourself you discovered Ethereums built in inflation rate is much bigger and so let's not make out Steems Strength as its weakness. Steem's ability to create new wealth without having to use up so much electricity as with proof of work bitcoin,

And Steem WILl be a coinf or investors!

Just because it hasnt performed rceently DONT think that means it wont perform! Oh it WILL when it reaches mass adoption ove rthe next few years steem will bein the $100 to $1000 range then off past $1000 to be around $2500 after we have hundreds of millions of users.

Wow! Thank you :)

Autosteem looks useful indeed. I'll surely play with it. (Although entering important passwords on 3-rd party website sounds scary. So my experience is going to be limited to anonymous view.)

I agree with you on your views on Steem. It certainly does have huge potential. I'm just trying to maintain a wide view on whole blockchain industry, ant it turns out it's not easy to tell who of all great products have better chances and greater capacity to grow.

Maybe I'm "old school," but investing for me means you buy and asset, hold onto it, and sell it later in expectation of a gain in value.

I think that option still exists for people to buy some amount of Steem, hope it doubles in value and that's their gain... independently of whether they are active on the social platform.

On the whole, though, I think you're right... this is an opportunity for content creators to become "stake holders" as a result of their effort and their "social marketing" skills. Which is a whole different kind of "sweat equity" investment.

Buying in order to sell for profit is speculation. I completely and utterly agree that Steem, as well as many other blockchain techs, is very promising in this regard.

Investing I believe originally means buying into a share of business. Share that implies the right to corresponding share in profits and assets possessed. One can argue that SP kind of does all that. The strange situation here is that Steem as a business has no external source of monetary income. All SP does, from economic point of view, is redistribution of 9.5% inflation of the same SP asset. SP is a share in business that has no profits by design.

There's also lending. Give someone money for a time, expecting them to return more, therefore enjoying profit. That's how SBD is supposed to work, but it currently does not.

Steem doesn't need authors. It has plenty. What it needs, is readers, and that is the problem they are going to have to solve if they want this crazy little experiment to work.

Interesting read. I will have to read a couple more times to understand it all. I am one of those comment-only guys who like to read but not write and have invested a little toward steem. I certainly don't get much curation awards but I'm not in it for the money. I'm curious to see how far steem will go. There are several folks who write much better than me, and who I just support with an upvote or 2.

Heey man! Thanks for this post, I'm really trying to wrap my head completely around steem and it's hard.
But I notice that these kinds of rules still promotes a lot of great quality content creation and reading.

If anyone knows can link me to any more posts that have to do with explaining Steem or cryptocurrencies in general, let me know.
I'm planning to understand this as much as I can in order to more efficiently explain it to other people so to recruit more steemers.

Have a great friday!

Hey! Welcome :) check this out if you haven't already:

  • FAQ is great. Whitepaper also does a decent job explaining how things work under the hood.
  • steemd.com is an indispensible tool.
  • If you want notifications on mobile, install eSteem.

Other than that, nothing comes from the top of my mind.

If you have particular questions, just google them. Steemians are good at explaining stuff, and google is good at finding their articles. I constantly google things like "what is that of steemit" and "how to do something on steemit". More often than not, the answer is right there at the top row.

Just started on the whitepaper and found steemd googling "how to check steempower", thanks for the tips!

I like your analysis.
But, for me Steem, is still one of the only crypto that really has a product to sell (i.e the Steem blog posts).
Moreover, this gives Steem a huge community that is growing more and more (+20,000 accounts each month currently). Community is important as we see for Bitcoin (largest community, highest price although not highest capabilities).
So when you say Steem is not for investors... It is hard to believe for me.

If its not for investors, then I wonder which crypto would be for investors ?

Steem did grow, does grow and has huge potential to grow in future. Thing is, it competes for my money with many other impressive blockchain techs. It's a difficult decision, and not obvious at all. Will multi-billion giants like Bitcoin and Ethereum continue to grow or the bubble should burst soon? Do I prefer solid beta-stage products like Steem, BitShares and MaidSafe that all have respectable market cap of 200m+? Do their currently less impressive, but lower market cap companions — Ethereum Classic, Byteball — have greater potential for growth? Do I bet my money on a fresh new ICO hoping it to shoot and grow thousandfold? Do I diversify? In which ratios? I don't know. Which one to prefer is a question of belief.

As for your question. Some blockchain products are designed for investors. BitShares 2.0 represents itself as a Decentralized Autonomous Company. It has cash flow with income (fees from their decentralized exchange), expenses (payout to witnesses supporting the network), profit redistribution (dividends to shareholders of BTS) and governance (democratic vote weighted by BTS). This is a genuine business plan. It may or may not work, but thing is, since BTS represents a share in a company that redistributes dividends, its market value at least is not entirely based on speculation. This is what I tried to find in Steem and couldn't.

Great answer. You're right, lots of question. Choose an innovative product with low market cap or a not so very innovative product with a bigger market cap ? Maybe it is better to choose the safest.

And ah ok, I understand now better what you say in your article : compared to BTS, one has to post to get part of the Steem dividends. True.

hi @teo-nxy. This is a very interesting analysis, and points out obvious flaws with steemit, in turn effective steem. Nicely done.

Thanks for the entry to the #bisteemit contest. keep your eye out for the contest results

Oh wow! Thanks. I never had so many comments as now after your reposts ^__^

I don't see those flaws as flaws, by the way. I rather believe it's an essential strategy for Steem at current early stages of community development. The overall best thing any start-up should do is to grow their userbase. If they don't need borrowed money to grow, even better for them in the long run.

Ive been on the platform for I guess a month already and some of my colleagues who were just new got their pay outs already. It makes me a bit sad that my contents are still not appreciated by others but it also what keeps me going still. It challenges me day by day to enhance my blogs and to make the content even more interesting for the readers to see. Yes you are indeed correct. Steemit is definitely for aspiring authors and one of those is me. Still fighting here.